| Since overcapacity arose the first time in the mid-1990s, China has experienced overcapacity three times, namely, late1990s,2003to2006, and2009till now. The scope of overcapacity has expanded from intial supplies to the means of production, and eventually PV industry, polysilicon and other emerging high-tech industries have also experienced severe overcapacity. The central government has repeatedly determined to tackle this problem, but produces little effect. The problem of excess production has become a factor that seriously affects the healthy and stable development of Chinese economy.At different stages of overcapacity in China, due to the major differences of industrial policy, market environment and international situations, the factors that influence capacity utilization are different, therefore cannot simply conclude as "market failure". However, among all the factors, competition among local governments always runs through the various stages of China’s overcapacity, and plays a huge role in it. Literature both foreign and domestic use qualitative research methods to study such problem, thus this paper combines both qualitative and quantitative analysis based on predecessors’ contribution, provides an all-round analysis about the mechanism of overcapacity in China led by competition among local governments.This paper establishes an economic model of local government and enterprises, local governments provide capacity subsidies to enterprises, enterprises develop production plans according to the profit maximization principle. Using blance analysis, a conclusion can be drawn: the more competing areas and enterprises, the less cost of subsidies governments provide, the easier overcapacity arises. This result is consistent with the actual situation in our country at present. At present, China’s tax system and the official promotion evaluation system leads to a phenomenoan that local governmental officials have a strong sense of competition in the region’s economic interests and political interests, and the focus of the competition is mainly concentrated on the capital resources, since capital resources can be converted to local government revenue and GDP in the maximum extent, and eventually become the achievements of local governmental officials. However China’s unclear land property rights, environmental rights, soft budget constraint of banks and the imperfect financial supervision system provide "cheap" means for the competition, the local governments provide a direct or indirect subsidies to the enterprises to obtain investment through these means, in order to win regional competition. What is worse, besides the large amount of excess profits the subsidies provided to the enterprises that are not in accordance with the market law, they distort the market prices of factors, which influence the investment decision of enterprises, making enterprises enlarge the scale of investment to obtain government subsidies, eventually lead to the excessive production capacity.In the empirical analysis, this paper adopts the method of data envelopment analysis, quantitatively calculates the utilization of the scale of production of state-owned and above enterprises in China’s31provinces (municipalities, autonomous regions) during2000to2012. The calculated results are in accordance with characteristics of overcapacity in various stages in China. This paper also conducts regression analysis of each index that influences capacity utilization by using the panel data. The results show, the local government subsidies and capacity utilization has significant negative correlation.Finally, based on theoretical and empirical analysis, the advice of solving overcapacity production is provided:first of all, from the motives of local governments, curbing excess production capacity from the source; secondly, from the means of local governments, curbing overcapacity with the utilization of technology; finally by strengthening the supervision, prevent overcapacity from reviving. |
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